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Thursday, January 1, 2015

WHY THE YANKEES CAN’T JUST "SPEND MORE"

It has been a frustrating experience for all of us. The Yankees have registered the second consecutive season without a playoff appearance, and there are no major signings. It seems like we played this game two years ago, when we signed a few second and third tier players and hoped for the best. Many of us have wished for the days of George Steinbrenner, when the Boss would go out and pay top dollar for the starts we needed.

Here is the sobering truth about the Yankees, and really about every sports franchise. They do not have a bottomless well of cash from which to draw. Going out and spending on top-shelf players is about as realistic as going out and spending top dollar on the latest gadget or the latest toy. You might be able to get away with it once or twice, but eventually that credit card bill will find its way into your mailbox. I suspect that the Yankees are in the same predicament.

Here are some financials. In 2013, the Yankees posted an operating loss of $9.1M. You read that right. As a business, the Yankees had a net loss for 2013. The 2014 numbers are not in yet, but they may not be that much better. The Yankees’ payroll jumped from $247M to $258M, even with Alex Rodriguez’ suspension savings (they paid him just under $3M for the year). Attendance at Yankee Stadium went up from 3.3M to 3.4M, so that should help, but that may not be enough. While I do not believe that the Yankees are in financial trouble – I am sure they have their cash reserve – I do believe that they have hit their ceiling on unhindered spending.

Now let us look at their spending. Last year the Yankees paid four players more than $20M – C.C. Sabathia, Mark Teixeira, Masahiro Tanaka, and Jacoby Ellsbury. In 2015, they will add the no-longer-suspended Alex Rodriguez to that list. No other team in baseball has five $20M players. The Dodgers will have four, the Phillies will have three, and a bunch of teams will have two or fewer. Here’s the other thing. If the Yankees had those five players performing at the level you expect from a $20M player, we would be in the playoffs every year, perhaps winning championships. The Dodgers' players are performing and are playing in October, the Phillies' players are busts and they’re in the cellar. Add to that the fact that most of the Yankees’ $20M busts are in the last years of long-term contracts, and you should no longer be surprised that they passed on Scott Boras’ $200M, longer-term contract demands. In my lifetime, I have rarely seen the Yankees pass on a deal for a top player like that, and should be a clear indicator as to where they are financially.

For the Yankees to be competitive there are only two possibilities in my view. The better option is that their $20M players start playing to their expectations. It is also the least likely of their options. C.C. Sabathia has to come back strong and capable of winning 18+ games. Teixeira has to come back healthy and capable of hitting .300 with 30+ homers and gold-glove play at first. Tanaka has to return to form and hope that he does not reinjure his shoulder, or (God forbid) need surgery. Alex Rodriguez has to become the Alex Rodriguez of old. It would take a miracle.

The other possibility is that the Yankees ride out their bad contracts and learn from their mistakes. There is more hope here, but like a long tunnel, it will be dark for a while before it gets bright. The Yankees have locked themselves into bad deals at least through this coming year and the following. In 2017, Mark Teixeira and Carlos Beltran’s contracts expire. I include Beltran because he did not live up to the expectations of his $15M salary, and at age 38, he may not for the duration of his contract. The Yankees have a $5M buyout of Sabathia’s contract in 2017, so they may get further relief there. That is where the healing for the team may begin. The following year they get out from Alex Rodriguez’ contract, assuming they do not buy him out before then. For Ellsbury and Tanaka, I am still optimistic that those deals will pay off.

At the end of the day, I think everyone in the Yankees organization wants to win a World Series every year. To win a World Series, you need talent. To have top talent, either you have to spend money to acquire it, or you have to develop it and spend money to keep it. To spend money, you have to have money to spend. When your money is locked up in long-term contracts, your options become limited. It is why many of us – myself included – have railed against long-term contracts. It becomes a gamble that can cripple an organization for years. Even an organization as big and wealthy as the Yankees.